Workshop on the implementation of the takeover bids directive - PowerPoint PPT Presentation

Workshop on the implementation of the takeover bids directive Germany Dr. Sebastian Mock, LL.M.(NYU) Attorney-at-Law (New York)

A. Origins of Takeover Law in Germany • no regulatory regime for takeovers in Germany until 2002 due to a general low number of takeover transactions o two-tier-board system (Vorstand/Aufsichtsrat) o workers co-determination o limitation on leverage buy-outs o dominance of banks in the German economy o German disease  reciprocity networks in the German economy creation of a non-binding codex in the 1970s  almost no • influence in practice creation of a new codex in 1995  also almost no influence • • need for changes in 2001 o growing influence of international capital markets in Germany o takeover of Mannesmann AG by Vodafone AirTouch plc  creation of the German Securities Acquisitions and Takeovers Act (Wertpapiererwerbs- und Übernahmegesetz [WpÜG]) in 2001

B. Implementation of the Takeover Directive • implementation of the takeover directive by Gesetz zur Umsetzung der Richtlinie 2004/25/EG des Europäischen Parlaments und des Rates vom 21. April 2004 betreffend Übernahmeangebote (Übernahmerichtlinie-Umsetzungsgesetz) of July 8, 2006  applicable since July 14, 2006 • minor modifications of the existing German Securities Acquisitions and Takeovers Act o orientation of the original German Securities Acquisitions and Takeovers Act at the already existing – and later failed - proposal for a takeover directive o creation of an opt-in/opt-out model o creation of the sell out o Breakthrough provisions o Squeeze out following a takeover or mandatory bid Recent literature in English: Ziemons/Schlotter/Hilmer , Germany, in: van Gerven, Common Legal Framework for Takeover Bids in Europe – Vol. 1, p. 164- 189, Cambridge 2008

C. Current Status of German Takeover Law I. Scope of the WpÜG • scope of application before 2006: offers to acquire securities of stock corporations and partnerships with registered seat in Germany • new scope of application – relation only to Germany: o Securities of stock corporations and partnerships limited by shares with registered seat in Germany and o Offers to acquire securities that have been issued by the offeree company and are admitted to trading on an organized market in Germany (Sec. 1(1) WpÜG) • new scope of application – cross border issues: o application to securities admitted to trading on foreign organized markets of stock corporations and partnerships limited by shares with registered seat in Germany only for corporate law issues  determined by the WpÜG-Anwendbarkeitsverordnung) o application to securities admitted to trading on an organized markets in Germany of stock corporations and partnerships limited by shares with registered seat outside Germany only for capital market law issues

C. Current Status of German Takeover Law II. General Principles • Equal treatment  general principle in German Stock Corporation Law (Sec. 53a AktG) • Sufficient time to reach a properly informed decision on the bid o Acceptance period: not less than four weeks and not more than ten weeks from publication of the offer document (Sec. 16 (1) WpÜG) – extended by competing offers (Sec. 22 WpÜG) and shareholder meeting (Sec. 16 (2) WpÜG) o Duty of the board to issue a statement concerning the offer (Sec. 27 WpÜG) • Acting of the board in the interest of the company  Sec. 33 WpÜG • No Creation of false markets  mainly prohibited by the German Securities Exchange Act (WpHG) – Market Abuse Directive • Ensuring cash consideration  confirmation of an investment service enterprise that the offeree can fulfill this obligation – liability (Sec. 12, 13 WpÜG) • No hindrance in the conduct of affairs of the target company  see Sec. 16, 22 WpÜG concerning the Sufficient time to reach a properly informed decision on the bid

C. Current Status of German Takeover Law III. Supervisory Authority • Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) as the central authority for capital markets in Germany • Powers (Sec. 4 WpÜG) o supervise bids in accordance with the WpÜG o investigative powers (power to gather information from everybody in connection with duties under the WpÜG; power to search the property of these person) o limitation in cross-border cases  need for legal and administrative cooperation • Judicial Review of the decisions of the BaFin o administrative objection procedure  possibility of the BaFin to review and change its own decision o appeal to the administrative court of Frankfurt/Main (special jurisdiction for all act of the BaFin in connection with the WpÜG)

C. Current Status of German Takeover Law IV. Offers Public offer Voluntary Mandatory bids Takeover bids Acquisition of a Acquisition a Bids made after non-controlling controlling gaining control interest interest ( Sec. 10-28 German ( Sec. 29-34 German (Sec. 35-39 German Securities Acquisitions Securities Acquisitions Securities Acquisitions and Takeovers Act) and Takeovers Act) and Takeovers Act)

C. Current Status of German Takeover Law V. Mandatory Bid • gaining control of the target company (Sec. 35 WpÜG)  controlling interest defined in Sec. 29 (2) WpÜG ≥ 30% of voting rights of the target company • extension concerning gaining of control (Sec. 30 WpÜG)  o includes also acting in concert (Sec. 30 (2) WpÜG)) (attribution of voting rights of third parties if bidder acts in concert with third parties basing of an agreement or otherwise  exercise of voting rights, permanent and substantial change of business strategy of the offeree company)  o not determined by the Takeover Directive • extension of the mandatory bid to all shares of the target company (Sec. 35 (2) WpÜG  but Art. 2(1)(e) Takeover Directive – only voting rights), but exclusion for o own shares of the target company o shares of the target company held by companies dependent on the offeree company o shares of the target company held by third persons for account of the offeree company  no interference with interest of minority shareholders (Art. 5 Takeover Directive)

C. Current Status of German Takeover Law V. Mandatory Bid • offering of an equitable consideration and equal treatment of shareholders (Art. 5 (4) Takeover Directive) • average weighted price on stock exchange of the shares in the three month prior to notification of gaining control (Sec. 5(1) WpÜG-Angebotsverordnung) or six month in case of prior acquisitions (Sec. 4 WpÜG-Angebotsverordnung). • Right to choose for the bidder to offer cash or shares as consideration – but: offer of cash obligatory in the case that the bidder or persons acting jointly have acquired at least five percent of the shares or voting rights of the target company within the last six month (Sec. 31 (3) WpüG) • Subsequent acquisitions: duty of the offeror to pay the difference between the paid price and the price paid within one year after the publication of the total number of acceptances for shares of the target company over the counter (Sec. 33 (5) WpÜG)

C. Current Status of German Takeover Law V. Mandatory Bid • Exemptions from the considerations in the calculation of the percentage of voting rights upon written application at the BaFin (Sec. 36 WpÜG): o Hereditary succession, distributions of a decedent’s estate, gifts between spouses, domestic partners or relatives who are direct ascendants or descendants up to the third degree, or distribution of assets resulting from the dissolution of a marriage or domestic partnership o Change in the form of organization, or o Restructurings within a group of companies  doubtful compability with the Takeover directive • Exemptions from the considerations in the calculation of the percentage of voting rights upon written application at the BaFin (Sec. 37 WpÜG): o justified by the type of the acquisition of control o Objectives pursued through gaining of control o Bidder falling short of the control treshhold after gaining control  defined in Sec. 9 WpÜG-Angebotsverordnung  generally accepted by German scholars concerning the compability with the Takeover directive

C. Current Status of German Takeover Law VI. Voluntary Takeover Bid • defined as bid to gain control (Sec. 29 (1) WpÜG) • covering of all shares of a company and not only securities carrying voting rights • consideration  application of the same rules as for mandatory bids (prior acquisitions, parallel acquisitions, average weighted stock-exchange price)  idea of synchronization the determination of the price for mandatory and take over bids

C. Current Status of German Takeover Law VII. (Usual) Procedure Approval by the Notification of BaFin and the bid Opinion of the publication of  publishing the boards of the decision to the offer target company submit an offer document (Sec. 27 WpÜG) (Sec. 10 WpÜG) (Sec. 14 WpÜG) Employee information Acceptance Period – between four and consultation and ten weeks of the target Company (Sec. 16 WpÜG) (Sec. 27 WpÜG)